Retirement insights from a Colorado PERA perspective

Issues & Perspectives

PERA’s Chief Investment Officer Addresses Market Drop

institutional investors

This week has been filled with uncertainty. As details about the current coronavirus outbreak emerge, people everywhere are wondering how this might affect them, their neighbors, and their families.

Amy McGarrity
Amy C. McGarrity, PERA Chief Investment Officer

Before addressing what this means for investors, and PERA in particular, I’d like to acknowledge that the health crisis behind the decline in global equity markets is an issue that goes deeper than money. Our thoughts are with those who have become ill, and our hearts go out to those families who have lost loved ones. We are thankful for the hundreds of thousands of health professionals worldwide who are treating patients, taking measures to prevent the spread of this virus, and those studying ways to combat it.

At PERA, we are acutely aware of the concern our members might have about the increased market volatility brought about by this virus. We are in the business of providing retirement security, and news of market declines can be unsettling. At Colorado PERA, we invest strategically, meaning we remain invested in our primary asset classes throughout the market cycle. In other words, we do not attempt to time the market.

Our strategic asset association is determined by an asset-liability study the Board routinely undertakes. We can’t predict when market volatility will occur. However, we can—and do—incorporate risk into our investment decisions. The most recent asset-liability study, completed in December 2019, resulted in the following strategic asset allocation targets:

  • Global Equities: 54%
  • Fixed Income: 23%
  • Private Equity: 8.5%
  • Real Estate 8.5%
  • Alternatives: 6%

In any given short-term period, the portfolio may perform better or worse than long-term expectations. Downturns are expected, and the swiftness with which they can occur often overshadows the rise in markets, even though positive market environments typically outweigh the negative impact of historical downturns. Global equities[1] have indeed lost 7.7 percent from the beginning of 2020 through the market close on February 27. However, when looking at the 10-year period ending on February 27, the overall return is 8.3 percent.

Instead of trying to predict what the markets will do from day to day, the PERA portfolio is positioned to deliver the expected long-term rate-of-return assumption (7.25 percent) over the long term (30+ years).

The markets don’t always go up. However, we are confident that PERA is well positioned to continue to invest through the ups and downs of the market cycle, providing the opportunity to achieve our long-term goals.

– Amy C. McGarrity

PERA Chief Investment Officer

As measured by the MSCI ACWI IMI (benchmark for PERA Global Equity asset class)

VolatilityVolatility of returns is the measurement used to define risk. It describes the variation of price of a financial instrument over time. The greater the volatility, the higher the risk.Private equityEquity capital that is not quoted on a public exchange. The majority of private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time.Fixed incomeSecurities representing debt obligations and usually having fixed interest payments and maturities. Different types of fixed income securities include government and corporate bonds, mortgage-backed securities, asset-backed securities, and may also include money market instruments.

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  1. Dennis Lima says:

    Glad to hear PERA will just continue to keep on keeping on with our investments. Mr. Market behaves rather irrationally on occasion but over the long run it does indeed go up around 8% a year. Thank you.

  2. Eric Werner says:

    Assuming that the asset allocation is a sound one, I say “good for you!” for not playing in-and-out timing games with PERA’s investments. Yes, it could all crash and burn; there isn’t and there never has been in the history of life on earth guaranteed security and survival. And maybe there is a time to bail. But this is not it. So thank you for being smart and level-headed in this difficult time.

  3. Elisabeth Shippey says:

    We need more specific information about the investments. What is in the “global equities”, both percent of foreign versus domestic stocks and their Morningstar ratings? What are the “private equities”? What are the real estate investments? And what is in “alternatives”? Our retirement funds have not been well managed in the past, so it is fair to ask more specifics. Thank you.

  4. Lisa Gonzales says:

    Amy, thank you for providing details your knowledge and assurances are appreciated. Our thoughts are with the many who have been affected, and appreciation to the many assisting during this health crisis.

  5. Brenda Petrie says:

    Why is PERA in a global market as tge main source of investment. We are US Citizens & therefore should have our assets invested here in the USA! Shame on PERA! Good investment strategies start here at home.

  6. bonnie says:

    In this volatile environment, is PERA considering diversifying further by investing in precious metal markets to hedge against the stock market and bond market downward cycles? We know that the QE the fed is doing can only lead us south, so I am curious how our PERA pensions are protected from the transfer of wealth (being robbed) in this next downturn. What say ye?

  7. Dean E Stegman says:

    Thanks for addressing, I feel some comforting from your comments

  8. Robert Hoff says:

    Thanks for your comments, Amy. In spite of the media hype, this thing will subside by May. I’m not worried about PERA’s investments. Let’s hope the JBC doesn’t go into another tail spin over it.

  9. Lorenzo F Perez says:

    I appreciate PERA’s outreach and reassurance regarding recent market volatility. It is indeed concerning given the current investment outlook, at least in the short term and in relation to global events. While I agree that in most cases stability and patience are strategies most likely to protect our investments over time. I do hope that PERA does not become complacent or unwilling to respond to financial circumstances should it become necessary.

  10. Loree Eatherton says:

    Thank you for planning strategically, however, I would like you to please consider diversifying/investing in local farms, orchards, wineries, and breweries right here in CO!
    Kroger/City Market for the long term, too. Just a thought.

  11. rich black says:

    PERA is the 5th most underfunded public pension in the country. If this downturn becomes part of a world wide depression, PERA’s stocks and real estate holdings will get smashed. As Warren Buffett once said, “It’s only when the tide goes out that you learn who has been swimming naked.”

  12. Bill Davis says:

    Thank you Mr Rich Black for your comment “PERA is the 5th most underfunded public pension in the country. If this downturn becomes part of a world wide depression, PERA’s stocks and real estate holdings will get smashed. As Warren Buffett once said, “It’s only when the tide goes out that you learn who has been swimming naked.”

    What will PERA do to limit the downside? …. Please consider revising the Global Equities to 23% and the Fixed Income to 54% so that PERA does not lose anther 30 billion dollars!!

    Global Equities: 23%
    Fixed Income: 54%
    Private Equity: 8.5%
    Real Estate 8.5%
    Alternatives: 6%

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